When existing homeowners approach me with the desire to purchase a new home I tell them good preparation is the best way to keep emotions in check. On average, there are over 180 activities s a real estate agent performs per real estate transactions. Managing two real estate deals can become complicated and stressful even if you are practiced in the process. Real estate transactions are often the largest financial transactions that many of us experience in our lifetime. Consulting with a professional who can simplify and assist you throughout the process pays dividends.
Before Any Else, Commit Yourself & Hire A Real Estate Agent
A good real estate agent will be able to navigate through the checklist of transactions. Your real estate agent is also your advocate who you can depend on for poise to help you make practical decisions. To learn more about working with a real estate agent and how they work with your needs, you can reference some of the articles listed below.
So, Should You Buy First And Sell Second?
Before making any firm decisions, it critical to understand your finances in order to decide whether to sell or buy first. For many people, two mortgages is not a feasible financial option. It is time to put together your financial planning team to carefully assess your options.
Buying First
Are You Preapproved For Another Home?
Work with your lender to determine how much capital you need to have to cover the cost of buying another home. You will be able to see what you can afford and what it looks like to afford two homes at the same time. If it will cost $4,000 to pay for two mortgages and you can only afford or are only comfortable spending $2,000, then you will need to shift your focus to selling your home first. If you are comfortable carrying a 2nd mortgage you have more flexibility, then that could be the better option. Depending on your specific situation, you may decide to buy first and then sell second.
Selling First
Most of our clients need to sell first in order to buy. In situations like this, they have to consider what they’ll do if their home sells and they haven’t found another home and put another under contract yet. In this case, your options include:
Option 1: Rent Until You Buy: Rent a place for a period of time while they look for the next house. This can get complicated if you have children or own pets and also stressful as you’re having to move twice in a short period of time.
Option 2: Lease Your Current Home After Selling It: Leaseback options make it possible to sell and close on your home and then lease it back for 2-6 weeks (or longer in some cases) from the Buyer. You should expect to pay them an amount at least equal to their monthly mortgage payment. If you can find a buyer willing to do this with you, this is ideal as it removes a lot fo the pressure associated with selling and buying at the same time.
Option 3: Arrange a Back-to-Back Closing: In this scenario, when the home you're selling goes under contract, you immediately go under contract on the home you’re buying. Timing on this has to be perfect, as both will be closing the same day. The home you’re selling closes in the morning and the one you're buying closes later that day.
While a back-to-back closing may sound easy, it’s more complicated to coordinate and more stressful than it seems. Also, a back-to-back closing assumes that you can find the home you want and put it under contract almost immediately after signing the contract to sell your current home, so the seller of the home you're buying will have to be on-board with the idea as well.
Another thing to keep in mind is that diligence and disclosure need to go smoothly in this situation. During the diligence period, there is the risk that a buyer can terminate the contract for any or no reason at all. You can potentially run into issues about disclosing the need to sell in order to close on the one you’re buying. For some sellers, this scenario can make a buyer appear questionable.
It is invaluable to have an experienced Realtor who has handled all of these transactions. There’s no one right scenario, every buyer/seller and situation is different.
Ultimately, It Comes Down To The Market Conditions
Understanding the current marketplace is key to deciding whether you should buy or sell first. The strategy to sell and buy at the same time will also depend on the current climate of the market. Your real estate agent will be able to tell you if it is a Seller’s Market or Buyer’s Market. 2017 proved to be a very hot Seller’s market in Triangle. The trends and numbers support another Seller’s market in the Triangle area in 2018. We will touch on strategies to consider for both types of markets.
The trends and numbers support another Seller’s market in the Triangle area in 2018.
Navigating as a buyer in a seller’s market can present some frustrations. Buyers are working with lower inventory, which means you may not find the home you’re looking for right away. Desirable homes in the “sweet spot” range will receive multiple offers. In the Triangle right now, anything under $325,000 is in the “sweet spot”.
As you approach homes in the $200,000s, the competition is particularly fierce. This is where working with a poised, practical, and experienced real estate agent is critical to keeping emotions in check. Your agent will also help you close on both homes the same day if you opt to go the back-to-back closing route.
Here are some strategies and considerations in a Seller’s market:
Contingent offers:
A contingent offer on a home is least desirable for a homeowner, particularly if you have multiple offers without contingencies. This takes away your negotiating power. If your home does not close, you cannot buy a new home. People receiving offers see this as high risk to their interests. If there is no contingency to sell your home, you may be able to delay the closing once the new owner of your home is approved by the underwriter. This not always something you can count on.
Two mortgages:
This option gives you the most flexibility as a seller and buyer. You will not feel the pressure and stress to sell your home with any contingent conditions. Moving will be a much easier transition since you do not have to rush out of your home. Selling your old home will be easier as well. Showing your old home will be less stressful if you’re not living there. You will not have to worry about cleanup and scheduling of showings.
Renting back:
A Seller’s market makes renting back a viable option if you’re selling your home. Once you have an offer on your home, you have the power to negotiate renting your “old” home back for a certain period of time. We have worked with clients who have rented the home back fro 60 days. This affords them time to shop for their new home and even deal with a few offer rejections. Renting back is far less risky than contingencies since you have already sold the home
Sell First:
This option gives you the best chance to find the next home you really want. You may find yourself packing up your belongings and storing them in a storage unit for an unknown period of time. If you find that you are having difficulty finding the “right” house, this may be your best option.
Additional Reading:
Bridge loans are an option if you want to float a short-term loan to afford two homes at the same time. While they can afford flexibility, there are downsides: https://en.wikipedia.org/wiki/Bridge_loan
If you’re in the market to buy, it will be useful to brush up your vocabulary. You can browse a list of Important Terms you Should Know When Buying a Home.
Co-authored by 3 Bossy Bees.
Posted by Larry Tollen on
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